Crowdfunding: Difference between revisions
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'''Crowd financing''' is an approach to raising the capital required for a new project or enterprise by appealing to large numbers of ordinary people for small donations. While such an approach has long precedents in the sphere of [[charity]], it is receiving renewed attention from entrepreneurs such as independent film makers<ref>[http://www.guardian.co.uk/film/2009/apr/14/clovis-dardentor-film-funding Teenagers' credit note approach to fund £1m film of Clovis Dardentor]</ref><ref>[http://www.time.com/time/magazine/article/0,9171,1838768,00.html TIME article on Crowd Funding the 'Age of Stupid']</ref>, now that [[social media]] and [[online communities]] make it possible to reach out to a group of potentially interested supporters at very low cost. |
'''Crowd financing''' (sometimes called ''crowdfunding'') is an approach to raising the capital required for a new project or enterprise by appealing to large numbers of ordinary people for small donations. While such an approach has long precedents in the sphere of [[charity]], it is receiving renewed attention from entrepreneurs such as independent film makers<ref>[http://www.guardian.co.uk/film/2009/apr/14/clovis-dardentor-film-funding Teenagers' credit note approach to fund £1m film of Clovis Dardentor]</ref><ref>[http://www.time.com/time/magazine/article/0,9171,1838768,00.html TIME article on Crowd Funding the 'Age of Stupid']</ref>, now that [[social media]] and [[online communities]] make it possible to reach out to a group of potentially interested supporters at very low cost. |
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Crowd financing is also being experimented with as a funding mechanism for [[journalism]]. Sites such as [[Spot.us]] and Global For Me employ crowdfunding to commission professional reporters to write stories chosen by their users.<ref>{{cite web|url=http://platform.idiomag.com/2009/05/crowdfunding-journalism/|title=Crowdfunding journalism|accessdate=2009-15-05|date=2009-19-05|publisher=[[idiomag|idio]]}}</ref> |
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==Approaches== |
==Approaches== |
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Revision as of 10:15, 14 May 2009
Crowd financing (sometimes called crowdfunding) is an approach to raising the capital required for a new project or enterprise by appealing to large numbers of ordinary people for small donations. While such an approach has long precedents in the sphere of charity, it is receiving renewed attention from entrepreneurs such as independent film makers[1][2], now that social media and online communities make it possible to reach out to a group of potentially interested supporters at very low cost.
Crowd financing is also being experimented with as a funding mechanism for journalism. Sites such as Spot.us and Global For Me employ crowdfunding to commission professional reporters to write stories chosen by their users.[3]
Approaches
An entrepreneur seeking to use crowd financing typically makes use of online communities to solicit pledges of small amounts of money from individuals who are typically not professional financiers. A range of variations are possible, for example:
- The solicitation could be to back an idea with no direct material return offered to those making a pledge. This type of crowd financing has long precedents including artistic patronage and the normal activities of charity fundraising.
- Another approach invites a display of sponsorship in return for the cash pledged. A widely documented internet-based example is The Million Dollar Homepage.
- The solicitation could be to offer a loan (Microfinance).
- Some kind of quasi-equity investment could be offered, though any such scheme would need to avoid falling under any applicable financial regulations regarding making an initial public offering.
Pros and cons
Proponents of the crowd financing approach argue that it allows good ideas which do not fit the pattern required by conventional financiers to break through and attract cash through The Wisdom of Crowds. If it does achieve "traction" in this way, not only can the enterprise secure seed funding to begin its project, but it may also secure evidence of backing from potential customers and benefit from word of mouth promotion.
Against these advantages is the requirement to disclose the idea for which funding is sought in public when it is at a very early stage. This exposes the promoter of the idea to the risk of the idea being copied and developed ahead of them by better-financed competitors.
Examples
References
- ^ Teenagers' credit note approach to fund £1m film of Clovis Dardentor
- ^ TIME article on Crowd Funding the 'Age of Stupid'
- ^ "Crowdfunding journalism". idio. 2009-19-05. Retrieved 2009-15-05.
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